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Attractive tax rules for foreign expatriates

The tax regime for foreigners who render services in South Africa for a relatively short period of time is a key area which expatriates and their employers are grappling with. These individuals (also more commonly known as 'short-term business travellers') are generally physically present in SA for periods ranging from two weeks to four months at a time. This is according to Anthea Scholtz, Tax partner and global employer services leader, at Deloitte, Western Cape.

"Generally, if these individuals are physically present in SA for less than 183 days in a 12-month period and provided they meet two other requirements, their remuneration paid by their foreign employer in respect of services rendered in SA would qualify for tax relief in SA under a double taxation agreement ("DTA”) – i.e. their salaries would not be subject to tax in SA.”

"The two other DTA requirements which must be met for this tax relief to apply, are that whilst in SA, the expatriate should not work for the economic benefit of a South African resident employer (i.e. a so-called "economic employer”) or for a foreign employer which has a permanent establishment in SA. However, in practice the expatriate’s "economic employer” is generally a SA resident company (i.e. it is usually a one of the foreign employer’s group companies, such as a South African subsidiary company,)” said Scholtz.

Due to this fact, the remuneration paid by the expatriate’s foreign employer for services rendered here, does not qualify for DTA tax relief in SA and it would therefore be subject to tax in SA – even though the expatriate may be physically present in SA for less than the requisite 183 days.

"In these circumstances, in addition to paying tax in SA, the expatriate would generally also need to pay tax in his/her country of tax residence (generally, their home country) on the same remuneration income. This tax position may thus result in significant cash flow problems for the expatriate as he/she would only be able to claim the South African taxes as a foreign tax credit in their home country at a much later stage. The expatriate would also need to register for income tax in SA which presents an added compliance burden.”

"To ease this tax burden, a de minimus rule could be introduced into our tax laws which should be applied when ascertaining whether these short-term business travellers qualify for tax relief in SA under a DTA. This rule could stipulate that provided the expatriate was physically present in SA for a minimum amount of days in a 12-month period (for example, 90 days could be used as a threshold), the expatriate would not be subject to tax in SA on their remuneration earned for services rendered here, despite the fact that the expatriate’s ‘economic employer’ may be resident in SA.”

"Such a change would go a long way to cater for the unique circumstances of these expatriates (especially those operating in the oil and gas industries, mining industries and various other key industries) and reducing the tax compliance burden on these companies. It would also significantly contribute to promoting SA as a ‘headquarter’ destination from which foreign investors can second their skilled staff into the rest of Africa,” Scholtz concluded.

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